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Right price for telecom licences, auction of new spectrum can fetch $2b 

February 7, 2019
Right price for telecom licences, auction of new spectrum can fetch $2b 

This is an opportunity for the government to plug in its budgetary gap

The operating licenses of Jazz, Telenor Pakistan and Zong are expiring in May, but renewing these permits at the right price and auctioning new spectrum to the industry can fetch the cash-strapped government more than $2 billion.

These estimates come from representatives of these companies but are endorsed by information and communication technology experts. Cellular mobile operators (CMOs) need these licenses from the government to operate commercially for a period of 15 years after which they need to renew them.

The process has been delayed already on one pretext or the other. It should have been done by the last government, but then elections came and the government changed. The government is said to be preparing for it now but it may have a deadlock with CMOs over what should be the ‘right’ price for renewal of these licenses.

The industry says an expensive license leaves them with little money to invest in infrastructure (buying additional spectrum, upgrading and expanding network), they argue. This slows down broadband penetration as well as economic activity that may result from it. Secondly, it will be unfair if these three players pay more than what Ufone has paid because the latter will have an advantage (in terms of cost of business) in the next 10 years.

The telecom players insist they should be charged the same price, which Ufone paid for the renewal of its license in 2014. Ufone had paid $291 million for the permit, which is valid for 15 years. At this price, the government will raise around $900 million from these three operators.

On the other hand, this is an opportunity for the government to plug in its budgetary gap, which is more than Rs2 trillion. Since these operators must pay to renew their license, the government can get quick money by offering a higher price.

Both the government and the private sector have their own justifications to protect their interests, but sane voices, such as information communications technology expert Parvez Iftikhar believes it makes sense to keep license price at parity with what Ufone has paid. To make more money, the government can sell new spectrum, already available with it, to the industry. These two events will add more than $2 billion to the government’s kitty.

The graph shows Pakistan at the bottom of countries that have allocated spectrum to their telecom sectors-Photo: Parvez Iftikhar

When companies invest huge amounts on licences, they don’t invest in the additional spectrum as is evident from the last two auctions. In spectrum auctions of 2016 and 2017, there was only a single bidder each time and no competition because the price was already high.

Even Bangladesh made a similar mistake by offering a spectrum at a price that was almost four times the global average for that band. As a result, 72% of the spectrum they put on auction in 2018 remained unsold. This is because an unreasonably high price doesn’t make a business case for these companies.

Spectrum prices are getting cheaper in European countries, such as the UK because they give more importance to economic value of higher broadband penetration. Higher broadband penetration translates to higher economic growth because it boosts economic activity, creates jobs, improves cost efficiencies and empowers people. About 86 countries have signed the International Trade Administration agreement, removing trade barriers from telecom imports to facilitate the faster and wider proliferation of the internet.

On contrary, Pakistan has done poorly in terms of facilitating the growth of broadband. Take for example withholding tax. Government earns Rs40 billion in WHT from telecom users but 80% of these users don’t have a taxable income. There is no mechanism for them to claim a refund of this advance tax because they don’t file tax returns.

Our penetration remains at 30%, which is very small compared to our population size (207 million). Access to a smartphone is still an issue because of higher taxes. No wonder, the country ranks poorly in the World Bank’s Ease of Doing Business Index.

Higher spectrum price increases the cost of doing business and discourages investors from expanding their network, which eventually slows down broadband penetration. No wonder Pakistan lies at the bottom in the list of countries from Europe and Asia Pacific in terms of spectrum allocation. This simply means our telecom operators don’t have enough spectrum. The sector has already invested $15 billion and needs to make more investment in infrastructure because talks of 5G technology have already begun and 5G cannot be implemented without laying fiber optic, which is need of the hour. But that is costly. If they buy an expensive license, it will slow down broadband penetration for existing technology. Forget 5G, they will not expand their 3G and 4G networks.

That said, experts believe there is a hunger for more spectrum and these players will need double of what they already have when 5G is launched. The government should sell more spectrum as soon as possible because an unsold spectrum is a lost opportunity, they say. It is not like gold whose value may increase over time.

Even if the government renews their licenses at the same price as Ufone paid, it can still raise north of $2 billion from these two events.

 
 
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